Business Law

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BACKGROUND

Outdoor adventure is big business in many areas around the world.  Hikers, riders, hunters and anglers pay handsomely for guided trips to pursue their passions. One of the prime areas for outdoor adventuring in the United States is the Rocky Mountains. In the areas west of Aspen, guides lead fly fishing trips hiking or riding into the mountains and float trips down the rivers, seeking adventure and lots of trout (at $300-$600 per day). The area of the Frying Pan River and Roaring Fork River host several very competitive shops and guide services.  Anglers come from the US and many other countries to fish, spending thousands of dollars on trips and gear. (For some examples of what’s involved, see: http://www.youtube.com/watch?v=qrYZcapmEoc. You’ll see how important this kind of business is to the area’s economy.  For a sense of how much money anglers spend on gear, see: http://www.orvis.com/store/shop.aspx?dir_id=758&shop_id=1446 ).  Almost all the businesses were started by entrepreneurs with a passion for the outdoors.  Many grew up in the mountains, fishing, hunting, hiking, and camping.  Others gave up careers in the city to follow their dreams in the mountains. 

Eagle County Outfitters (ECO), Inc. is a successful guide service and fishing shop in Colorado, serving the Frying Pan and Roaring Fork river areas.  In 2010, it offered a full line of high-end fishing rods, reels, and flies, and provided guides for fishing trips on the famous Frying Pan, Roaring Fork, and Colorado rivers.  Rod Caster, one of the most famous fishermen in the area, started the business in 1983, and built it into a successful enterprise.  He owned 100% of the stock of the corporation.  He also held in his own name US Forest Service Permit SOG93, a guide permit that allowed him to operate guided trips on the Frying Pan and Roaring Fork Rivers through US Forest Service territory. 

            On December 23, 2010, Caster contracted with Robyn Wade to sell all his stock in ECO for $150,000, to be paid over eighteen months.  In addition, the agreement contained an employment agreement for Caster to continue working for ECO as a consultant for ten years, at an annual salary of $36,000. The agreement required Caster to hold the “Outfitting Licenses absolutely [for] the benefit of ECO, because the continued holding and availability of these licenses is integral to the ongoing viability of ECO.” This provision was included in the contract after Caster represented to Wade that permits and licenses could only be held in Caster’s name and could not be transferred to ECO.

PART ONE: Wade Jumps in with Both Feet-Litigation Follows.[1]

On April 1, 2011, Caster transferred and conveyed all ECO shares of stock to Wade. As of November 22, 2011, Wade had paid defendant $76,671.23 and $73,328.77 remained due on the purchase price. Wade began operating the business, and Caster worked for Wade, helping in the transition of ownership and operations of the business.

On November 23, 2011, the parties’ deteriorating relationship took a turn for the worse. Caster submitted an order for trout flies to Gunnison, Wade’s husband and ECO’s vice president. Gunnison responded in an e-mail to Caster, stating that the fly order appeared to be excessive. Caster e-mailed a reply: "You are on your own." Without receiving a response from Gunnison or Wade, Caster sent another e-mail later that day, providing in part:

I have been ordering flies from various manufacturers for twenty years and I know I have a better understanding of flies than you.  Look at the facts—Flies have been our largest sales for years.

I am not stupid! The reputation of . . . [ECO] has been going down since you took over. I worked twenty years to make the shop what it was and you have been running it into the ground. This is not just me talking but customers who Art [a]nd I have known for years. You lost Scott Rods, are losing Sims and Action Optics. You have been selling off the inventory that came with the shop (that I paid for) in order to keep the doors open. The shop had the best year ever and should be paying for itself. So much for "nothing is going to change[.]" Don’t cut off your nose to spite your face. The reason for the increase in sales was not of your doing, but location, location, location! I was more than willing to be part of the team but there is not a team. It’s all you and when you don’t listen to experience and people who are trying to help, then I don’t know what to do. I would like my name, web fishing reports, and any reference to or about me removed from . . . [ECO].  I want real property as equity as insurance per our agreement. (not encumbered). The shop has been working on my credit long enough. Use your own credit. I don’t think you want me calling Homeland Security.

Wade assumed that Caster had resigned from ECO, and the next day, her attorney sent Caster a letter explaining that Wade "accepted" defendant’s "desires" that were "expressed" in his e-mails, that she was negotiating with the bank to obtain a loan to pay the balance owed to him, and that she was ready "to work with" his attorney "to settle all matters of disassociation." Caster did not respond to the letter.

On December 3, Caster sent Wade the following e-mail:

I would appreciate it if you would drop my 2010 and 2011 credit card invoices off at my mailbox or at the shop. I would also like to have my 2010 income tax information.  Anything that is yours and pertains to ECO will be delivered to you at the shop.  Year being 2011.  Give me a list.

That same day, Wade’s attorney sent a letter to defendant requesting ECO’s 2010 tax return so that Wade could secure a loan to pay the balance owed to Caster. The letter also discussed "winding up" ECO’s affairs and "orderly disassociation." Caster did not respond to the letter.

On December 9, the parties’ attorneys met and discussed "winding up" ECO’s affairs. Caster’s attorney did not indicate that Caster wanted to continue working for ECO.

On the same day, Caster removed from ECO’s fly shop Permit SOG93, which had been amended to include a second permit, the "Grizzly Permit," which authorized guide trips on the Colorado River and had been purchased by ECO, Inc. in 2011. He also notified the Colorado Department of Wildlife that ECO could no longer operate under "his" permits. He also informed ECO’s guides that he was no longer an ECO outfitter, that they could not take float trips under his permits, and that they could not go on United States Forest Service property because ECO no longer had the use of "his" permits.

From the time defendant removed the permits until May 2012, ECO had no permits and, therefore, ECO guides could not take customers on guided fishing trips. As a result, many of the guides resigned and ECO was unable to replace them.  In May 2012, ECO finally straightened out a basic permit so it could begin outfitting some trips, but lost $65,000 in fees it would have cleared for arranging guided trips.  It was September of 2012 before ECO could contract with enough guides to conduct the trips its customers wanted, so the store lost a lot of business over the busy summer season.  Wade stopped making payments toward the purchase price in November 2011.

PART ONE QUESTION:

1.     Assume Wade approaches you in September, 2012, asking for advice.  Write a memo that analyzes the purchase gone wrong.  In it, address the following:

Did Caster breach his contract or contracts with Wade?

What should Wade do now?  Continue not paying the remainder of the purchase price? Is it worthwhile to sue Caster?   

If she does sue Caster, what should be the different bases for the suit?  What damages should she seek (both financial and non-monetary)?  

In addition to your assessment of the deal, briefly outline two or three ways she should have protected herself from this outcome in the original purchase of the business.

PART TWO: Building the Business

Once Wade ironed out her permit difficulties, she worked very hard to build her business into a premier outfitting operation.  She purchased several mountain cabins on a nearby stream, opening them as a bed and breakfast operation for guests coming to the area for guided trips (and in the winter season, for skiers).  She set out to recruit the best local guides, often hiring them from other outfitters.  Her husband Gunnison, an avid angler and inventor, developed a series of new trout flies that were very successful, not just on the local rivers, but through the Rocky Mountains, New England,  and New Zealand (other major trout fishing areas). He also designed a line of clothing that was both comfortable to wear and served as flotation devices upon immersion in water (Drowning is a risk to anglers, especially in mountain streams fed by melting snow).

PART TWO QUESTIONS:

2.     In marshalling her human resources, Wade is considering whether to retain the services of her guides as employees or as independent contractors.  She thinks that if she hires them as employees, she’ll be able to offer them some benefits.  That’s ethically appealing to her, and she thinks it might allow her to attract and retain the best guides.  She might also be able to get non-compete agreements, too.  On the other hand, her administrative burdens would be higher, and most of the shops in the area classify their guides as independent contractors.  What’s your advice about the risks and rewards of dealing with the guides as employees or independent contractors?  Which choice would add the most value to her business?

 

3.     Gunnison has had some inquiries from large national dealers (Orvis, LL Bean, etc.) about his new trout flies and his clothes.  He’s worried that these companies will take his designs and copy them.[2]  He won’t be able to compete with the larger businesses.  Craft a strategy for Gunnison to use intellectual property to build value for ECO.  If he didn’t wish to stay married to Wade, could he build this as a separate business for himself, or does he owe the opportunity to ECO? 

Your response to these questions should be, in total, approximately 4 pages, double spaced.  Note that you will only be awarded points for answering the exact questions asked.  Label each question separately. Last, as a reminder, do not change the facts of this problem, the questions that I’ve asked or the law!  Good luck.

 

 



[1] All of the facts in this part come thinly disguised from a court decision.  I do not want you to go look it up.  It’s more complicated than necessary for this exam, and the case was decided on grounds we won’t be dealing with. It makes for a great story, though.  These are the actual e-mails.

[2] To see how trout flies are marketed, take a look at the LL Bean catalog: http://www.llbean.com/llb/shop/500155?page=fishing-flies.

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